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Candy Still a Winner
Innovation, adaptation, and good margins make candy a good bet for c-stores.
By Cecelia Blalock
The country is belly deep in an obesity crisis and ingredient prices are rising. So why are candy manufacturers and convenience store operators smiling? Sales are good for one thing, especially in c-stores. According to ACNielsen, dollar sales of non-chocolate candy in c-stores for the 52-week period ending March 13, 2004, rose 5.2 percent. Chocolate candy did even better, climbing 10.9 percent in the same period.
Candy manufacturers are doing what they’ve always done – offered consumers a continuous stream of new products, marketed traditional candy items in creative ways, and come up with innovations that meet current consumer trends and demands. C-store operators can take a lot of credit as well.
Several years ago when c-store operators began to see erosion in their store margins because of losses in gas and in-store merchandise, they began to take a harder look at the categories to see where they could put more of their attention, says Dave Onorato, vice president, national convenience store sales, for Hershey Food Corporation. Candy was a good choice because it is the biggest snack category, the most profitable, the most impulsive, and the most responsive to merchandising.
"The last two years have been a very exciting time," Onorato says. "Retailers have reached out and along with manufacturers have done a good job in bringing new items into the category. Candy offers great profit and turn potential. If retailers merchandise high-profit, high-volume items in the traffic pattern they can create more sales."
A Weighty Issue
Does candy have a bright future in light of all the attention on our national obesity crisis? Ironically, candy may be better equipped than other food segments to meet the challenge, given the fact that innovation is such an important part of the candy business. Manufacturers are quick to respond to emerging trends and c-store retailers are accustomed to featuring new candy products.
The candy category is going through some transitions, believes Mitchell Goetze, vice president of the family-owned Goetze Candy Company of Baltimore, MD.
"It’s still candy as everyone remembers it, but I think the pressure from the obesity issue that has been directed at soda and salty snacks is finally filtering down to candy," he explains. "Anything sweet is seen as an evil food. The transition is maintaining the fun, carnival type of feel but with new products being developed to meet dietary trends. It used to be how sweet you could make something, how sour, or how hot. Now we’re addressing consumer issues."
Many candy lines now offer some type of low sugar or sugar free varieties. The dietetic chocolates have been the biggest driver in promoting burgeoning sales. According to ACNielsen, dollar volume in sales of dietetic chocolates in c-stores rose 126.6 percent in the year ending March 13, 2004, slightly lower than the 148 percent dollar gains recorded in food, drug, and mass merchandise combined.
Companies are also switching to natural sweeteners like fruit concentrate to provide a healthy twist to non-chocolate candy popular with kids.
As of July, the best-selling Too Tarts® line from Innovative Candy Concepts of Atlanta will no longer contain refined sugar. (See sidebar.) Another company capitalizing on high fruit content is Fiesta, USA in Hampton, NH. Although its Electro Shocks licorice is better known, Fiesta is introducing Fantastic Fruit, a lollipop with over 50 percent fruit content.
"We think it’s the first fruit snack lollipop," says Fiesta President Jose Mayoral. "It’s a healthier product."
Clearly, there is a trend toward sugar free and low carb, says Matt Petronio, vice president of marketing and R&D for Just Born, Inc., Bethlehem, PA. He sees a continuing market for these products that is larger than before.
"We are looking at that and challenged on how we can be consistent with our brand and deliver what consumers expect in terms of flavor, texture, and taste and be low carb," he says. "We’ll do it."
Business is good for Just Born, Petronio reports. The popular Mike & Ike brand is being relaunched, with fruit juice added to the original and strawberry as a new flavor. The old 2.12 g box has been replaced with a 2.12 pouch. The company’s bread and butter Peeps have an added attraction for Halloween with chocolate-filled marshmallow pumpkin Peeps.
Like other manufacturers and retailers, Goetze believes there is still a place for candy for those maintaining a well balanced diet and healthy lifestyle. His family has been in the candy business since 1895 and Goetze plans to continue to sell his line of popular chocolates.
Palmer Candy of Sioux City, IA, attributes its 126-year success to eschewing fads and "staying the course," according to company President Marty Palmer. Their traditional chocolates remain popular and the company is launching a new line of bagged chocolates. New packaging meets consumer needs in terms of keeping the product fresher and being recyclable. Private label is a large part of its business. Store brands often turn to Palmer when they want to extend their lines but lack adequate capacity.
Culture Conscious
The growing Hispanic market also is attracting the attention of candy manufacturers. Hershey Foods has signed popular Latina actress and singer Thalia Sodi to endorse its products and raise Hershey’s profile among Hispanic consumers.
"We’re very much aware of the importance of the ever-growing Hispanic community, particularly as a confectionary consumer," Onorato says.
Impact Confections of Colorado Springs, CO, is evaluating its taste profiles and may change some and repackage its products for the Hispanic markets, says Russell Mackay, director of marketing and new product development. Spicy flavors like chili and such fruits as mangos are popular.
What’s Novel?
Kids love novelty candy almost as much as c-store operators who see them as a way to keep the candy category fresh and intriguing.
"Kids always want to try something new," says Mackay. "They are looking for forms of candy that entertain them. We’re seeing strength in rope-type products that they can twist and turn."
Impact introduced seven products this year, including Poppers, with its bursting candy inside a chocolate ball. The crunchy center is the "surprise factor" that kids love, according to Mackay. The new Snow Cone has a hard candy top and candy syrup at the bottom that is squeezed up through the top.
"It takes a lot of effort and research money to come up with the right combination," Mackay notes. The company makes great use of focus groups in its research center where they assess everything from kids’ body language to their spontaneous comments. What they’ve discovered is that kids go back to the staples for their candy choices but will try new things. They look for things they can recommend to their friends.
The goal for Cap Candy, a Napa, CA-based candy marketing company, is to "create harmless mischief" for 3-18 year olds, says Deirdre Gonzales, vice president of marketing. Spin Pops are now in their 11th year, ancient by novelty standards. Adventuresome little kids go for things like Bug Factor, a lollipop with an edible bug inside, while the slightly older, more sophisticated consumers have fun with Nimble Notes, edible paper that allows them to write messages on their tongues.
Cap Candy looks for what children are interested in year by year and what is going on in the culture, says Gonzales. Licensing arrangements give their novelties instant recognition. They outdid themselves on their Harry Potter products, she says.
"It’s one of the few licenses that has created artifacts that kids do not complain about," according to Gonzales. Their Harry Potter products have remained true to the books, even including such delicacies as Bertie Botts’ flavored beans and such tempting flavors as ear wax, black pepper and vomit. Six new Harry Products will hit the market in June.
Price Pressures
The candy pricing structure, which has been stable for a long time, is coming under increasing pressure.
"Every single ingredient, tangible and intangible, in food production has seen increases or significant increases," says Goetze. "It started a year and a half ago and they’ve come one after another. It’s never ending. Candy retails are set. If manufacturers’ costs go up, retailers’ margins go down. Manufacturers have pressured suppliers to hold prices because they can’t pass them along. That can only go on for so long. Suppliers are now raising prices and that’s putting pressure on manufacturers to go to retailers and say they can’t sell the product for what they did. It’s made worse by the large confectionary companies that give away product at such low prices, sending a message that costs are not as bad as they are.
"It’s really harming the price structure," he continues. "There was an understanding of what was reasonable. Everyone got their chunk. Now it’s all messed up. Everything is tied to giveaway prices."
With novelties, 99 cents has been golden for the past few years, says Gonzales. But pricing is tight and there are subtle hints that $1.49 to $1.99 will become prevalent.
"It’s hard to stay at 99 cents and still provide value," she says.
On Top of Their Game
C-stores seem to have mastered the art of successfully marketing candy, especially compared to other channels.
"C-stores continue to give a lot of space to confections and have a lot of variety," says Petrino. "They’re seeing more foot traffic with more diversity of consumers coming in so they recognize they need to have a level of diversity in their products. C-stores are always strong in off-shelf display to drive impulse sales."
Vendors can be key partners with c-stores in getting the right product mix using information as a tool.
"As we work with our channel partners, we tell them they need to use current research data," Mackay reports. "A lot of vendors are buying tracking information. We put the information together even before we go in to make the presentation."
C-stores need every edge they can get in a retail environment where lines between channels continue to blur. But great times may be ahead thanks to a wave of new products. Will kids like candy as much if they think it’s good for them?
Cecilia Blalock is a food industry writer based in Jessup, MD. She can be reached at cbla665743@aol.com.
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